1. Field of the Invention
The present invention relates generally to the funding of living expenses for individuals considering relocation to a nursing home, assisted living center, hospital, long term care facility or any other assisted living facility and, in particular, to a method and apparatus for increasing liquid assets of such individuals for use in paying at least some of the living expenses incurred at assisted living facilities through sale of the individuals' life insurance policies.
2. Current Relevant Art
Life insurance has been a valued product for many years. Individuals, relatives and corporations have purchased life insurance to protect themselves, their families and, in the case of officers and directors, their businesses from, inter alia, sudden loss of income. However, as a wage earner becomes older, the need to protect the family from sudden loss of the wage earner decreases or is eliminated. Alternatively, in the case of a corporation, the officer or director on whose life a life insurance policy was issued may have retired or otherwise left the corporation, and the corporation no longer has a need for the policy.
In the past, the options for an elderly insured was to allow the policy to lapse or, in the case of life insurance policies that were not paid up over time, continue to pay the premiums, which in some cases are rather large, if coverage was still desired for some reason. However, new needs typically arise for the insured and his or her family as the insured grows older. For example, medical needs of terminally or chronically ill individuals may require a large outlay of cash or other liquid assets to pay for services that are not covered by the individual's health insurance, Medicare, or Medicaid. In some cases, such individuals are best served by entering a nursing home or other assisted living facility where they can receive necessary, professional care on a regular basis.
When a terminally or chronically ill person, age 65 or older, desires to enter a nursing home or other assisted living facility and further desires to use Medicaid to fund the person's stay and care, state Medicaid regulations generally require the person to divest himself or herself of substantially all liquid and liquidatable assets, subject to state-specific exemptions. Such regulations typically permit the person to retain a small amount of liquid or liquidatable assets. For example, states generally limit the face value of life insurance of an assisted living, Medicaid recipient to an amount of one thousand five hundred dollars ($1,500.00) or less. Thus, in many cases, a considerable amount of a person's life insurance is vulnerable to divestment in order to receive Medicaid funding of assisted living expenses.
Several methods presently exist to enable a Medicaid applicant to divest himself or herself of life insurance owned by the applicant. First, the applicant can simply cash in his or her policy for whatever cash value is in the policy. However, the cash value is often very small when compared to the costs of funding assisted living services and does not generally afford the Medicaid applicant sufficient funds to pay for living expenses associated with residing at a nursing home, an assisted living center, a long term care facility, or any other assisted living facility. Moreover, due to the substantial nature of the costs associated with providing assisted living services, the cash value of the applicant's life insurance policy is typically incapable of providing any significant delay in connection with the need for Medicaid or other governmental assistance funds.
More recently, insurance companies have afforded the owner of a life insurance policy the opportunity to transfer any cash value or accelerated death benefit the owner has in the life insurance policy into a limited long term care policy at the time the owner enters a nursing home or other assisted living facility. While the popularity of accelerated death benefits is slowly evolving, such benefits are most often available only for policies in which the owner is the insured and only when either the life expectancy of the insured is twelve months or less or the insured's illness, disease, or condition falls within certain specified categories.
As a third option, the owner of the life insurance policy may present the policy to a viatical or life settlement provider in an effort to obtain cash for the policy. Viatical settlements are liquidation vehicles for life insurance policies in which a viatical settlement provider determines a life expectancy of the insured based on a variety of factors, including the medical history of the insured, and, based on the life expectancy and the face value of the policy, offers the owner of the policy a percentage of the face value of the policy, less any outstanding loans or presently due premiums. The proceeds to fund the offer are acquired from investors (e.g., institutional or individual investors). Presently, the amount of a viatical settlement offer is largely unregulated, although the cash payment made to the policy owner is required to be more than the cash value or accelerated death benefit, if any, of the policy. Some states specify the percentages that must be paid to the policy owner if the insured has a life expectancy of twenty four (24) months or less. Such specified percentages are typically eighty percent (80%) if the insured's life expectancy is less than six months, seventy percent (70%) if the insured's life expectancy is at least six months, but less than twelve months, sixty-five percent (65%) if the insured's life expectancy is at least twelve months, but less than eighteen months, and sixty percent (60%) if the insured's life expectancy is at least eighteen months, but less than twenty-four months. In exchange for the viatical settlement, the policy owner assigns or otherwise transfers his or her ownership of the life insurance policy to the viatical settlement provider, which in turn transfers the policy to the particular investor. The viatical settlement proceeds are generally held by an escrow agent until the policy owner has transferred the policy to the viatical settlement provider, at which time the proceeds are disbursed by the escrow agent to the ex-policy owner or his designee (e.g., an attorney or a guardian).
While the foregoing methods for liquidating some or all of the face value of a life insurance policy are presently available to the policy owner, none of the methods require or insure that the proceeds received by the policy owner are used to pay the living expenses of the policy owner while the policy owner resides at an assisted living facility. Since the policy owner or its designee has no obligation to use the liquidated or divested proceeds to fund assisted living expenses, state and federal assistance programs, such as Medicaid, often do not reap any benefit of the program applicant's divestiture of life insurance policies. In addition, there is presently no procedure for advising an individual or his guardian as to the individual's various options for divesting of life insurance policies owned by the individual to increase the assets used by the individual to pay assisted living expenses and, thereby, temporarily defer the individual's reliance on government assistance.
U.S. Patent Application Publication No. US 2004/0225537 (“the '537 Publication”) discloses a method for raising funds for non-profit organizations using life insurance policies. Pursuant to the disclosed method, a non-profit organization (“NPO”) identifies individuals or groups of individuals in whom the NPO has a potential insurable interest. The NPO then requests authorization from the individuals to take out life insurance policies on the lives of the individuals pursuant to the NPO's insurable interests. Upon receiving authorization from the individuals, the NPO takes out one or more life insurance policies covering the insurable interests naming the NPO as beneficiary. The NPO may also group the life insurance policies and sell the policies to raise funds for the NPO. The NPO utilizes a “passive vehicle” to hold the insurance policies so that the passive vehicle is “bankruptcy remote.” Therefore, while providing a means for funding an NPO, the method disclosed in the '537 Publication provides no benefit to an individual seeking funding for assisted living expenses.
U.S. Patent Application Publication No. US 2004/0148202 (“the '202 Publication”) discloses a system in which an insurance policy is purchased from an insured and replaced with a substitute policy at a lower face value and premium. The replaced policy may or may not be maintained long term depending upon, inter alia, a life expectancy of the insured. While providing a means for an aging individual to maintain at least some form of life insurance instead of having to allow the original policy to simply expire due to the individual's inability to continue making premium payments, the '202 Publication provides no mechanism through which the individual may increase his or her liquid assets for purposes of funding assisted living expenses.
U.S. Pat. No. 5,926,800 (“the '800 Patent”) discloses a system for providing loans to owners of life insurance policies where the owner retains ownership of the policies during his or her lifetime, and the insured obtains a line of credit upon terms determined by an algorithm used by the system. Therefore, while providing one mechanism for extracting cash from a life insurance policy, the '800 Patent does not disclose or suggest any means for delaying or deferring the individual's reliance upon government assistance. Rather, the loan approach disclosed in the '800 Patent would potentially permit the policy owner to extract proceeds from a life insurance policy and simultaneously qualify for Medicaid, thereby increasing the governmental assistance burden.
U.S. Patent Application Publication No. US 2001/0047325 A1 (“the '325 Publication”) discloses a method for providing lines of credit or loans to terminally ill and health-compromised individuals who have a qualified life insurance policy. The loans are secured by the policy. Upon death, the company collects the benefits of the life insurance policy, pays off the loan and any premiums advanced by the lender plus origination fees and accrued interest, and gives the remaining funds to the beneficiary designated by the borrower. Therefore, similar to the '800 Patent, the '325 Publication does not disclose or suggest any means for lightening the government's burden of providing funds for assisted living expenses of terminally ill individuals.
U.S. Pat. No. 6,393,405 (“the '405 Patent”) discloses a method of calculating payout ratios in a transaction in which a chronically ill individual sells a portion of his or her life insurance proceeds in exchange for an investor paying the premiums. The policy remains owned by the individual, but the death benefit to the individual's own beneficiaries decreases the longer the investor pays the premiums. However, the '405 Patent does not disclose or suggest any means for liquidating the life insurance policy for purposes of funding the assisted living expenses of the individual, thereby delaying the individual's dependence on governmental assistance.
Finally, U.S. Pat. No. 6,330,541 (“the '541 Patent”) discloses a system and method of managing a pool of life insurance policies to generate a consistent cash flow from death benefits paid on the insurance polices so that at least a portion of the cash flow may be sold to a third party. While providing a mechanism for administratively managing a pool of life insurance policies, the '541 Patent provides no means for increasing the liquid assets of an individual to meet at least some of the assisted living expenses of the individual.
Therefore, a need exists for a method of increasing liquid assets available to an individual (e.g., an owner of a life insurance policy) to at least partially fund living expenses of the individual at an assisted living facility that provides a mechanism for advising the individual as to the availability of selling the individual's life insurance policy and that insures proceeds of any such sale are indeed used to pay the assisted living expenses of the individual, thereby delaying, if even for a short period, the individual's dependence upon government assistance.